gold prices soaring, but what coin series will benefit?

MoneyLA

Gold is once again knocking at the $400 door, but what does this mean for coin collecting in general? Will it mean more interest in silver (the poor man's gold) and copper (the pool man's silver)? What series is likely to benefit the most from the increase in precious metals? I remember when ms65 morgans shot through the roof, could these days return? Or is the best way to play gold by buying gold? Your thoughts. thanks and cheers, alan mendelson

dollardude

My feeling is that gold, like coins and other precious metals, are HORRIBLE long term investments. I don't think a person can make money in precious metals or coins over a long period of time. I do think that if a collector wants to put some value-added time into either of these hobbies, he/she can make some money at it over a short term. With this said, I think that precious metals and coins are not totally related. Precious metals are vehicles people use to invest in over a short term because of the falling value of a currency, high inflation, or low returns from other investments. Coins can be short-term investment vehicles, but they are generally a hobby to most people. I do, however, believe that all coins with precious metals in them have generally benefitted slightly from the previous increase in the price of gold. If gold is near a ten-year high, and it has averaged around 0-5% per year over the past 100+ years, while the stock market has averaged 12%, I don't think gold will continue to rise much beyond around $400/ounce.

Edited to Add: IMO, the best way to play gold is to SELL any gold you may have and BUY good growth stock mutual funds and real estate.

roadrunner

Most coins on collectors want lists will do very well if gold continues to soar. Silver will be on its heels eventually and will likely be the better play. It would take nothing to triple the price of silver. Of course most gold coins (esp MS63-65 Saints, Libs) will do very well.
Any of the market that has been lagging somewhat will also soar as dealers turn profits into type coins, commems, better date dollars, and dated sets. Moderns too.

The 12% per year rise in stocks this century is no longer a benchmark imo as much of those gains were based on a growing manufacturing industrial base that has long since peaked. Don't forget the inflation that was built into our system starting with the creation of the FED in 1913, and then eventually going off the gold standard in 1971. This was a 100 year trend that has essentially ended. A large hunk of that 12% per year gain is due to inflation. We are living off the remaining coattails of those gains. Our massive debt increase over the past 10 years are like huge shackles that are now nearly unbreakable. We've saddled our kids and grandkids with a huge burden to shoulder. Wait until Soc. Sec. benefits are due for baby boomers start retiring in droves. When economy and stocks have tanked over the years, gold was there to pick up the pieces and equalize things. No different now. Until the economy is patched and we an worthwhile expanding job base, gold will shine.

No, there is a shift occuring from paper assets to hard assets. By the time most people figure it out, they will have lost a large % of their net worth. This won't be pretty unfortunately. If anyone has an economic solution to the current situation I'd like to hear it. And answers such as "faith in the US Govt" or "never underestimate the ability of the US to recover" are not acceptable. Spending $87BILL in Iraq is not the answer, nor is printing more money and allowing more credit. Shipping well-paying jobs overseas for a fraction of the price...and then replacing them with $25K/yr jobs in the low end of the service sector is not the answer either. Nor is keeping interest rates at 1%. By trying to manipulate dozens of markets since 2000, we have only succeeded in ensuring a much more lengthy recovery with a far deeper trough. Every aspect of the current economy is negative...regardless of the positive spin assigned to so many average gains or small losses.

Gold is moving long term and all worthwhile coins will benefit as Joe Mainstream starts to get wind of it. The run to $400 is imminent.
$500 is not far behind. There will be large pullbacks along the way, but the trend will be decidedly UP.

roadrunner

dollardude

MoneyLA, and other folks reading this, as you know from other posts, after reading all of the opinions, I STILL think gold and other precious metals are HORRIBLE long term investments. I would encourage you to listen to the advice of self-made millionaires. If you want to become rich, you do what rich people do. If you want to become poor, you do what poor people do. Most self-made millionaires got that way using three vehicles:

1. Real estate,
2. Good growth stock mutual funds, and
3. Starting their own business.

Most people who I have talked to who have lost money on investments have done so using the following six vehicles:

1. Timeshare properties,
2. Network marketing scams,
3. Gold and other precious metals,
4. Daytrading individual stocks,
5. Collectibles (yes, even coins), and
6. Trading stock options.

If anyone reading this thread REALLY wants to build wealth, here are the secrets:

1. Live on less than you make,
2. Follow a written budget,
3. Pay off all of your debts, cut up your credit cards, and then NEVER BORROW MONEY EVER AGAIN, and
4. Invest in real estate and good growth stock mutual funds that have good long-term track records.

Geez, what a real secret that was! Building wealth is VERY SIMPLE. Following it is VERY HARD.

I think Dave Ramsey (Smartass, but Some Good Financial Advice) is a real smartass, but I do agree with his seven "baby steps":

1. $1000 cash in the bank as a beginner emergency fund,
2. Debt snowball -- pay off all of your debts smallest to largest,
3. Finish the emergency fund -- 3 to 6 months' of expenses,
4. Save 15% for retirement,
5. Save for kids' college education,
6. Pay off the house, and
7. SAVE and GIVE like you've never done before because YOU DON'T HAVE ANY PAYMENTS!!!!!

There are always naysayers out there who will say that the sky is falling. I don't see some huge rush into gold and other precious metals. No one has presented a case that gold and other precious metals will somehow break their pitiful 100+ track record and magically have huge gains...

Edited to Add: I know I can be a bit of a smartass myself, but I just want folks to be aware that gold and other precious metals are a high risk investment that is historically not used for long-term wealth building. If you do decide to invest in gold or other precious metals, please be informed.

cladking

Smart money now is betting on gold but smart money is wrong sometimes. It will at some
point in the future become critical to shift out of gold sinply because it is a lousy long term
investment.

roadrunner

Anyone looking to invest in anything for 100 years (yeah, stocks too) is nuts. How many businesses last 100 years? While gold (and most businesses) have a terrible 100 year record, gold did just fine during the 1974-1980 time frame. That was the last time that it was free to run in price. That's how long it took to straighten out the economy. Betting on stocks right now for the long term is just an absurd proposition given all the trends out there. Every previous market cycle says that we have a long ways to go down. But I'm amazed that the faith in our FED to rescue us is so strong. This time it's different. We now have ways to fix broken markets...painlessly too.

Gold is a lousy investment but is has done well over the past 3 years
and kicked butt over the stock market. Gold market stocks in particular are up around 300% with a 53% gain this year alone in the gold bug index (better than the NASDAQ). Everything is a terrible long term investment....eventually. Warren Buffet is a self made Millionaire and he is invested in gold and silver. He has tens of billions right now in cash because he think the stock market stinks.
He's bought all the companies/shares that are worthwhile and has run out of choices. He's buying foreign currencies as well rather than US treasuries. Gee, this all seems like great news for stocks as a whole, huh? And don't forgot to mention than insider selling has outnumbered insider buying for months now by a factor of around 50 to 1. A totally crazy number. What do the CEO's know that we don't know? Yet Joe Average is bullish on stocks and still buying up a storm. Yep, sounds like a bull market recovery to me.

I'll buy the fact that real estate is a wealth builder for selected properties. But I just hope anyone betting the farm on stocks is sitting on the right side of the next upcycle since they can last 15-25 years. Imagine being 35 now and waiting 15 years to break even on stocks? It's happened before (1929-1945) and can certainly happen again. For those that were on the right side of the cycle when they were in their investing prime, stocks were great. How about those who were 35 in 1929 and had to wait until they were 50 to break even? Not so good. Who cares what any investment does for 100 yrs unless you are building wealth for your heirs? I think we are all more concerned about the 20 year windows that encompass our prime investment years (30-50 or 35-55) than what happened in 1903.

roadrunner

oreville

I never look at gold as an investment. I see it as a store of value, a backup plan to the stocks, real estate, owned business, retirement plans, etc.

Gold is our call to arms in a world gone amok. Will it ever happen? It has ALWAYS happened in every civilized economy including the United States..

Remember the Continental Dollar? It can easily happen again.

You need at least small amount of gold and silver since we are now depending on our government to pay us back with more of the same paper money.

I have personally found that owning a home along with income producing real estate is among the best "investments" one can own. However, careful purchase of stocks can do very well also.

But gold and silver in fact, acts very similar to real estate raw land in that they are not income producing but that they are not costly to maintain.

The best real estate of all is lake front property whether buildable raw land or with a cabin/home on the lake.

What series will benefit from rising gold prices? The trick here is to forget that line of thinking and stop buying into coin series that are dependent on external factors to do well!!!!!!!!!!!

Buy into coin series because you love it and enjoys great collector interest as well. Example is the walking liberty half series. Classic, affordable in enough grades, great supply, great demand.

dollardude

Roadrunner, I will respectfully "agree to disagree" with you, as the old saying goes. I know several self-made millionaires, and NONE of them made their fortune from gold or other precious metals. Let's see...one good friend of mine, "Jerry", started his own business out of his house (books and tapes), speaks/preaches all over the country, and has written many Christian books. I know for a fact that he does not own a single ounce of gold. Another friend of mine, "Skip", did it through joining the military and investing his extra money in individual stocks (I DON"T RECOMMEND THIS, but he had so much money that he actually created his OWN mutual fund for himself!), since a lot of his expenses were paid for by the military. He now works as a consultant to the DoD, and makes huge bucks, which he investes (sometimes 100,000 shares at a time -- not like YOUR 100 shares or so). He is now retired in Florida. He owns NO gold. Another friend of mine, "John", got there by opening up several pawn shops in Arkansas. The only gold he owns are the jewelry in his pawn shops. Another friend of mine, "Dave" got there by starting a radio show and writing books. He owns NO gold. An old boss of mine, "Jesse" in Missiouri got there by simply putting money in good growth stock mutual funds. He also had a little real estate. He had NO gold. My current boss, "Vern", got there by good growth stock mutual funds and very heavy on the real estate side. He owns NO gold. I cannot think of a single self-made millionaire who got there by investing in gold. Ask the rich people now if they would buy gold while its near a 10-year high!

I DO think the past 100 years of the stock market are important, because that is the same basic system we use today. I also DO think that the past 100 years of the price of gold is important because this gives us an indication of where it may go in the future, based on past patterns. Yes, gold CAN be a very GOOD short term investment. But to try this now is ridiculious! Gold, a high risk investment that few people are willing to invest in, is near a 10-year high. On average, where do you think something will go that is at a 10-year high? Unless there is some major chance in the way the economy is operating -- and I don't see that -- you would expect it to go DOWN. Again, gold is sometimes used in specific circumstances of high inflation, weak value of money compared to other currencies, times of civil unrest, or when other investments are poor. Frankly, I don't see ANY of these special cases. So, I expect gold to fall and continue the average annual return during 100+ years of between 0% and 5% (I think 3% is about the right number).

Edited to Add: Actually, if you want a good short term investment, try silver. If you look at PCGS' gold chart from 1970-present (1/3 of a century), gold went up from about $40/ounce to $400/ounce, or a 1000% gain. Silver, on the other hand, went up from about $2/ounce to $5/ounce, or a 250% gain, or ONE-FOURTH THE GAIN! So, statistically, I would be more prone to invest in silver than gold if I were interested in a high-risk, short-term investment. But, I would not risk too much money in it.

BTW, if Warren Buffett has purchased a large amount of gold, you can bet that it is too late by the time that small investors like us figure things out. Why do you think the runup in gold took place? A few very, very rich people decided that gold was a very good short-term investment because the stock market stunk. Now, I believe it is too late to make money in gold. The time has passed until the next inflationary period like the Carter years!

JoeHolt

well I listen to Dave Ramsey almost dailey he has great advice if you are willing to do it. I hope to get on the show this FRI the 21 to scream Im debt free except for my house that I have 14years left on but the snow ball is rolling.

Dave may shoot me due to I do keep part of my emergency fund in gold, plat and siliver that I bought at lower prices then they now stand and I know I can sell for cash fast if I need to. Have done this 2 times so far. I guess Dave would say I like stuff and I need to have a yard sale (heheheh) inside joke for Ramsey listners

Cocoinut

I have never thought of gold as a good investment, but certain factors are coming together that may change that, at least in the short term. While stocks have made impressive gains in the past year, many are trading at more than 20 times earnings, making them overvalued, IMO. T-bills, bonds, or CD's? Forget them, they're paying next to nothing, and after taxes and inflation, you're lucky to break even with them. Real estate? Still generally strong, but many fear that it's overvalued, and that a "correction" is coming.

It's also necessary to look at the global economy, not just our own. Foreign governments have been investing in the dollar; Japan and China hold a combined total of over a half trillion dollars in Treasury notes. Our Fed continues to churn out money, but what will happen if/when foreign governments stop buying or, worse yet, start dumping their dollars? The dollar is a fiat currency, only as strong as people's faith in it. If that faith erodes, the value of the dollar drops relative to other currencies, and the price of gold increases.

I don't think putting a portion of your wealth into gold over the short term will make you rich; that has never been gold's role. But it may keep you from losing purchasing power at a time when there are few appealing alternatives. If you buy gold, don't plan to hold it forever. At some point, other income-producing investments will once again become the preferred way to go. The question is: will we be able to have higher rates of return on traditional investments without an equally higher rate of inflation?

Jim



Jim

roadrunner

Dollardude,

Where'd you get the info that I buy "100 shares" of anything vs your long list of buddy self-made millionaire's 100,000 shares? Sounds like you have a bit of condescension running in your veins.

Joe Average is not going to get rich making self-help tapes or starting up a business. If everyone did this, no one would be getting wealthy off it. IF everyone is planning to retire on stocks in the next 10-25 years, you can forget it. We all can't follow the same path to wealth. How many Tony Robbins' or Tony Little's make a million doing that? For every one that tries the self made route, I'll bet 9 others (or 99) don't make it. That's why the winners become wealthy. It takes more than just persistence or intelligence. And it takes some luck too. It's not for everyone and most lose at it. Just like stocks, gold, and every other investment....MOST LOSE AT IT because they buy/sell at the wrong times and do it emotionally. Human nature at its worst. Read that again, MOST LOSE AT INVESTING. My dad and hid dad made $5 million in stocks by holding and holding over 75 years. 1925 to 2000 was a good time to be holding long term. Had my dad not passed away in early 2000 he would have surely seen his stock gains severely cut because he never would have sold. It was in the blood to hold and hold long term. Half of that $5 million went right to the FED in estate taxes.
So the govt really made out the best on his years of investing. While this may look like a poster child for long term investing, understand that he his gains were very moderate over the years until the mid-1990's when the big run-up occured. How do those 12% per year gains look in the 20th cent. if you only go from 1900-
1987. I'd bet they suck and barely cover the cost of inflation. Let's face it, if the market experiences a real 70% correction (4000 DOW) like every major bull has for the past hundreds of years of world history, then these great gains will evaporate to barely cover the
average inflation rate of 3-5% per year. Let's have this same discussion in 2010. Stocks, like any speculation is all timing and buying at the base of the long term up cycles and selling on the way down. That's also how MILLIONAIRES do it. Those guys sell on the way down when the outlook is not favorable. Joe Average rides it to the bottom. IF that wasn't the case, then we'd have no MILLIONAIRES....and no market.

Gold is an INVESTMENT if you can keep your hard-earned wealth with it. And with stocks still within 20% of a 3 year MASSIVE BUBBLE HIGH, I'm scared to death of stock funds dependent on the major indexes. More so the large funds rather than selected stocks. Index stocks are gonna get creamed. Gold is one way to hold on until better things show up. If gold has a 6 year window once again that would be all one could ask for. As far as gold at a 10 year high, why don't you state the real truth. Gold went through a double bottom with the most recent one around 2-3 years ago. So forget the 10 year high crap. Gold finally bottomed for good after a 19 year bear market. Stocks completed a 20 year bull run and now only in the infancy of a sustained bear market. This is a very young gold bull market. There hasn't even been a strong move to the upside yet. Just a gradual climb since 1991. The exponential type jump usually associated with true "older" bull markets is nowhere to be seen yet. With the reasoning you just gave, everyone should have bolted from the stock market around 1997 after a 10 YEAR RUN to NEW HIGHS. So what gives? Did you follow your own advice and get out in 1997 when the DOW hit 7500 and Nasdaq was still low? Something magic about that 10 years I guess.

Until you see interest rates climbing and the dollar fixed and climbing long term again, this gold bull market will continue to run. And it will drag coins along with it like it has before. Oreville is 100% right in saying that gold has its place. It's been doing this for 5000 years.
And it was the only "currency" the framers of our country trusted.
It's always had its place. But 20 years of distrust is hard to erase.
Gold is still a "hated" commodity, and Dollardude's view is precisely the norm. It is when an item is most out of favor that it presents the best potential. The little blip so far in gold is just from insider accumulation. Wait until it hits the mainstream like it did in 1978-1980. We are at least 1-3 years from that point.

And as far as your stock millionaires go. Many of them will lose 80% of what they own unless they protect that money be diversifying into reverse index stock funds (shorts), real estate, precious metals, foreign currencies, commodities, energy, and selected stocks of very sound companies in the preceeding groups. I'm very fearful for the average guy who is still heavily invested in growth funds, tech funds, and index funds in general that mirror the S&P, Dow, and Nasdaq. More so for US based companies. Those people are going to lose big over the next 3-15 years. How many people got out of the 2000 stock market with their gains intact? I'll bet less than 5%. Everyone has ridden it down, figuring they'll make it up on the next rebound. MY millionaires sold out in the 1999-2000 window. If they have bought back it was during the dips. I'm sure many of those MILL's are now shorting the market. And don't look now, but real estate as a whole will be following the stock market down. Selected properties and land will do ok. But as a group, primary residences, and average business properties are going to take a beating too. This is just part of a normal cycle as seen in the 1930's and 1970's. You can soon add the 2000 decade to that list.

And Dollardude, I respectfully disagree. Sorry that you had a bad experience with gold in the past that clouds your thinking. The more I read on the subject the more I realize there is no alternative right now except for gold to run. Not until we make hard choices to buckle down and fix the economy the right way...rather than the politician's ways, will things right themselves. 70% of investors are now bullish on the stock market. Do you really think that the majority is right?

roadrunner

dollardude

Okay, I'd like to add one more thought about gold. Nothing I've read here will convince me to invest even a single dollar into gold. Our country invested heavily in gold too (like China, etc.) back in the 1700s and 1800s, but we "grew out of" this mentality. I STILL have not heard from any self-made millionaires that they made their money in gold. I don't even think a small amount is a good idea. Dave Ramsey is the biggest smartass I know, but I do agree with him on this one, and he is a self-made millionaire. Again I say, IF YOU WANT TO BE RICH, DO WHAT RICH PEOPLE DO. IF YOU WANT TO BE POOR, DO WHAT POOR PEOPLE DO.

I think the world economy is slowly improving, which would further make real estate and good growth stock mutual funds an even better investment, because they are OWNERSHIP type investments. You actually OWN something that has a useful purpose.

Okay, let's say, for the sake of discussion, that the sky IS falling. What would happen? Real estate and stocks would fall in value. BUT, guess what? So would everything else. Do you really think your FDIC-insured bank accounts are safe? Do you really think precious metals would actually be worth something? We would be back to a barter system, before money existed, where we traded for each other's services. What are you going to do with a pile of gold if the whole world collapses? NOTHING. If the whole world collapses, then what can you actually do with gold? It has no real practical purpose like, say, real estate. You can't eat it, you can't use it to make tools with, and you can't live in it.

Yes, I actually did pull out prior to the 1997 stock market correction, and put everything back the next day. This was a bit of luck. Looking back, although I was lucky, I should have probably just dollar-cost averaged my stocks. It wouldn't have mattered much in the long run if I hadn't have done this.

Roadrunner, I respectfully and TOTALLY disagree. In fact, what you have said has made me more convinced that gold is still a HORRIBLE long term investment. Let's just look at the situation very simply. If gold is near a 10-year high right now, and it has a HORRIBLE long-term track record, and thw world's economy is improving, what would you do?

Edited to Add: Here is a wise investment tip from daveramsey.com:

<<Q: My investments are losing money, yet I keep hearing Dave talk about 12% returns?
A: Great question, and one we get often. The answer is that Dave is referring to the average annual return of the stock market since 1926, which is very near 12% annually when adjusted for inflation. Even the past few years of negative returns in your funds do very little to lower the average of the last 78 years.
Remember, Dave considers investing to be a minimum of 5 years. Less than that is simply saving and should not be done with mutual funds. This is a good place to disclaim that the past is not an indicator of the future; but we do highly suggest factoring in long track records of success into your plans for the future.>>

cladking

The world and the hobby are very different places than they were in 1979. At that time
some dealers had significant inventries of gold some of which had been acquired at very
low prices. Many collectors had accumulations of metals for which they had paid little and
really had little attachment to. Morgan dollars were hot and when the prices soared it was
only natural that a lot of the profits were funneled into them.

Today there are many fewer coin shops so each serves a larger population but this popula-
tion does not have a lot of fabricated silver and silver coin to sell off if the price runs up be-
cause they sold it in 1980. While collectors often still have significant holdings of metals, these
are often tied up in collections and are far less disposable. Additionally these pieces tend to
be higher value so can't just be shipped off to be melted.

If metals prices were to soar again the effect would be much more concentrated in the hobby.
The winners would likely be things that are already hot. Raw moderns would dry up very quickly.

supercoin

Okay, let's say, for the sake of discussion, that the sky IS falling. What would happen?

My portfolio consisting of canned baked beans and can openers would (finally!) SKYROCKET. Yeah baby!

roadrunner

Dollardudel,

I guess we think alike. After listening to you I am sure gold will have a bright future for the next several years. If you cannot convince someone who is the precious metals arena with the facts, then Joe Average will never get. Until it's too late and he decides to buy at 90% of the Peak because his neighbor recommended it.

Look at your history. Gold held it's own during the great depression.
While houses fell to 20% of their value, gold held it's own. Which would you have had? And gold stocks? Well they skyrocketed during the 1930's...possibly one of the best investments at the time.
The same situation has been repeated during downturns in the stock market in general and times of change.

What would I do? I haven't ever owned any gold. Not even in the
1979 period. Maybe a Saint or two but that was it. But 2 years ago it was clear to me what was happening. Gold was $320 then.
The bull market was already a year old and I knew nothing about it.
I was clueless about any of it. To me was gold was dead before Nov 2001. Let's just say I spread my thinking out. Now I have about 15% of my assets in MS Saints and $20 LIbs along with other numismatic and bullion gold coins. But the majority is in medium grade 63/64 $20 Saints.

Quit harping on the 10 year old bull market in gold. This bull is 2 years old, period. All the forces to generate a true bull market finally lined up in 2002...not in 1993. Getting the bond market to break last year and start to fall along with the US dollar were the last 2 things needed. Those were not in force in 2001 and certainly not in place 1993 (10 years ago). That's why this bull market is 2 years old. Not 10. Whose research are you reading any ways?

The total "gains" of the last 78 years are 12%. Great! And the CPI is also "2%" too!!! (uh-huh). But that 12% does not exclude inflation, they do not account for dropping off laggards from the index (to be replaced by a Microsoft for example), and it is heavily weighted over the last 5 years since that is where 6x the appreciation since 1987 has come from. This is the same way the govt does the CPI. If you discard after 1987, the period period from 1929 to 1987 was a wash. The DOW wandered from around 900 in 1929 to 1500 following the 1987 crash. Not much of a gain really.
During the 1960's there was no gain since the 1929 peak! We've had almost no correction to date in the DOW or S&P. I mean a strong, ass-kicking, crying correction to shake out all the bullishness. You cannot include the market from 1996 on in your calculation of gains over the past 78 years UNTIL the full correction is IN PLACE. That is unless you want to look at BS. The trend is downward right now. Let it play out then calculate your gains from 1926. It won't be 12%. And it likely won't even by 6% when it is all said and done. It will barely cover 78-85 years of inflation.

You won't buy gold and I won't buy "regular" McStocks. We think alike. I'm comfortable being in the 5% minority right now. I've never made anything being in the majority. You are no doubt comfortable doing what 95% of the Joe Average investing world is doing. I stuck my neck out earlier this year and sided with some gold bugs that said we'd close above $400 this year on one day.
Very few gave that any creedance. Let's see what happens in the next few week(s) or month(s). It's gonna be interesting.

roadrunner

Higashiyama

Roadrunner -- although I share your concern with the awkward state of the US and global economies, I have trouble coming to the same conclusions.

The scenario you are painting is fundamentally a deflationary one -- share prices falling, real estate prices falling, debt crisis and crumbling economy. In this scenario, while gold could outperform cash, one could argue that simply maintaining an extremely high degree of liquidity - ie, holding cash and cash equivalents is the best strategy. In a deflationary scenario, gold does have a downside risk. In a deflationary scenario, by definition you earn a positive (and currently non-taxable!) return by simply holding cash.

On a different note -- the reason that the prices of silver and gold diverged after the 1960s is tied to the fact that silver has been truly or almost truly demonentized. Gold, while having little or no official role, is still preceived as a store of value. Therefore, the price of silver is substantially driven by its commodity value, while this is not the case for gold. People should be cautious in concluding that silver is a good buy because its price is so small as a fraction of gold's price, by historical standards. For much of history, the ratio of the price of gold and silver was quite stable because both had some role as money/store of value, etc. These ratios could come back into line if silver is remonetized, or if people's interest in holding gold as a store of value declines over time. But, it is far from obvious that silver is currently undervalued.

docday2003

<< <i>I have never thought of gold as a good investment, but certain factors are coming together that may change that, at least in the short term. While stocks have made impressive gains in the past year, many are trading at more than 20 times earnings, making them overvalued, IMO. T-bills, bonds, or CD's? Forget them, they're paying next to nothing, and after taxes and inflation, you're lucky to break even with them. Real estate? Still generally strong, but many fear that it's overvalued, and that a "correction" is coming.

It's also necessary to look at the global economy, not just our own. Foreign governments have been investing in the dollar; Japan and China hold a combined total of over a half trillion dollars in Treasury notes. Our Fed continues to churn out money, but what will happen if/when foreign governments stop buying or, worse yet, start dumping their dollars? The dollar is a fiat currency, only as strong as people's faith in it. If that faith erodes, the value of the dollar drops relative to other currencies, and the price of gold increases.

I don't think putting a portion of your wealth into gold over the short term will make you rich; that has never been gold's role. But it may keep you from losing purchasing power at a time when there are few appealing alternatives. If you buy gold, don't plan to hold it forever. At some point, other income-producing investments will once again become the preferred way to go. The question is: will we be able to have higher rates of return on traditional investments without an equally higher rate of inflation?

Jim



Jim >>



Amen to that!

docday2003

<< <i>Roadrunner -- although I share your concern with the awkward state of the US and global economies, I have trouble coming to the same conclusions.

The scenario you are painting is fundamentally a deflationary one -- share prices falling, real estate prices falling, debt crisis and crumbling economy. In this scenario, while gold could outperform cash, one could argue that simply maintaining an extremely high degree of liquidity - ie, holding cash and cash equivalents is the best strategy. In a deflationary scenario, gold does have a downside risk. In a deflationary scenario, by definition you earn a positive (and currently non-taxable!) return by simply holding cash.

On a different note -- the reason that the prices of silver and gold diverged after the 1960s is tied to the fact that silver has been truly or almost truly demonentized. Gold, while having little or no official role, is still preceived as a store of value. Therefore, the price of silver is substantially driven by its commodity value, while this is not the case for gold. People should be cautious in concluding that silver is a good buy because its price is so small as a fraction of gold's price, by historical standards. For much of history, the ratio of the price of gold and silver was quite stable because both had some role as money/store of value, etc. These ratios could come back into line if silver is remonetized, or if people's interest in holding gold as a store of value declines over time. But, it is far from obvious that silver is currently undervalued. >>



Something I love about this site is the fact that there are so many well informed people, who argue their positions quite convincingly, yet their opinions differ! Carry on!

dollardude

<<Something I love about this site is the fact that there are so many well informed people, who argue their positions quite convincingly, yet their opinions differ! Carry on!

Okay, you asked for it, I'll throw out a few more thoughts to ponder on this subject, but I'll try to be professional.

Well, of course I am going to disagree about the price of silver vs. gold. Actually, if someone wanted to invest a (very) small portion of his or her net worth in precious metals to be more diversified, I would recommend silver over gold. Both basically have no real purpose anymore, except maybe a little bit in manufacturing (i.e., gold sometimes used in making ICs) and jewelry. Both are the same perceived intrinsic value investment dinasours as far as I'm concerned, but I'll take silver over gold due to the huge price differential. Yes, the U.S. is borrowing more and more money and going deeper and deeper into debt, but so is the rest of the world. So, everything is a wash, and we're back to using currency backed by faith in the government and in God. This backing, to me, is better than gold and silver because this backing is something concrete, e.g., the labor of people, the production of goods and services, etc. Yes, interest rates are increasing, but that's just expected as we work ourselves out of the recession. I don't think interest rates are anywhere near inflationary. Yes, the world's economy is shaky, but it is improving, which would tend to favor stocks, business ownership, and real estate. Look at how China (world's most populous country) is building its economy. Boeing just won a HUGE contract to build commercial jets for China. And, ALL of the major U.S. automakers are scrambling to set up production facilities there. Look at Russia. Its stock market is slowing recovering. AND, the world is generally at peace. Given the fact that the world's economy is generally improving -- albeit slowly -- I don't see gold and other precious metals as a really wise move either in the short or long term. Okay, I just KNOW someone will disagree...

Edited to Add: <<You won't buy gold and I won't buy "regular" McStocks.>> I just had to respond to this one. I not only like "McStocks", but I REALLY like S&P 500 index funds -- especially the Vanguard 500 Index Fund, which has kicked ass! I just thought I would throw in a plug for index funds in general, and Vanguard in particular. Check out this chart on the world's two largest mutual funds at VFINX vs. FMAGX.

Higashiyama

Dollardude -- it's hard to disagree with your preference for index funds, but . . . it would be interesting to see the same comparision over the period when Peter Lynch was managing Magellan. (1977 - 1990?)

dollardude

I agree, Peter Lynch was a stock-picking genius. There are a few good actively-managed funds out there, but they are hard to find!

roadrunner

DD, the stock market and NASDAQ in particular have had a great 6 month run, no doubt about it. It just bothers me a bit that insider selling is so much greater than insider buying. But the little guy is stocking up, literally. I think this was just a strong bear market ralley. Time will tell either way. While the NASDAQ shone, it still got beat out by the gold bug stock index with a 53% gain for the same period. Unhedged gold stocks index on ave is up 300-400% since the bottom of the gold market. A tough act to follow. Yet as others have said, mainstream financial reporting ignores it. I also don't feel that the rest of the major (G7) countries are in the debt predicament we are in by any means. Most of them are tightening their belts, raising interest rates, and taking their lumps now to restore their markets. The US is keeping the blinders on and charging ahead with the printing presses on "warp speed." At some point the whole thing has got to give.

Higashiyama, while I guess my scenario is a bleak deflationary one, I feel the inflation meter is soon to get a boost as interest rates take a hike next spring. The deflation scare is about gone and inflation seems to be the watchword.

roadrunner

oreville

roadrunner: Your quote:

<< <i>I feel the inflation meter is soon to get a boost as interest rates take a hike next spring. >>



You mean Spring of 2004 or 2005?

I was expecting rates to begin rising shortly after the national elections of November 2004.

roadrunner

Higashiyama,

I don't think the lid can be kept on this until the elections. I think the chances are better that some interest rate movement will have to be allowed in the first half of 2004. It may not be a lot but I think there will be a half point to a point. Real interest rates are negative and I think the FED has to at least make that positive to get keep investments going. How long will Japan, China, etc. continue to invest in the US if real rates stay negative? I don't think they'll suffer through another year of that.

roadrunner

dollardude

Roadrunner, I think we have found some common ground here. I agree that the U.S. cannot keep borrowing and printing more money. This is a problem that really concerns me. I have even considered proposing that the total national debt be equally divided among each person. Then, each person could pay it off. Every administration -- democrat and republican alike -- doesn't seem to address the problem.

While I agree that this is a problem, I don't think that investing in precious metals will solve this problem, nor do I think it will help the investor. We have to invest in people, not an inanimate object, if we want to put a dent in the problems that exist.

I just want to say that I've really learned and benefited from this thread! I appreciate everyone's opinion, thank you! I know we veered off topic a bit, but this has been the most stimulating thread I've ever been involved in!

supercoin

In evaluating Peter Lynch's inarguably impressive performance, you have to compare it to an investment of similar risk. It's not fair to compare it to the S&P 500 index which is made up of the biggest and generally most stable companies in America, and is relatively safe (as far as equities go).

I recall reading somewhere that when you compare his Magellan fund's performance to indices based on companies of similar size to those he held, that the performance was much less impressive. The old risk/reward thing.

Or I may have that mixed up with somebody else. Sound familiar to anyone?

roadrunner

Dollardude,

Yes, I concur this thread has been interesting. To answer the original question of MoneyLA I'd say the $20 Saint series for sure.
But not which particular grade. It could be anything from MS62-MS66. My choices are the MS63 and MS64. Enough gold to benefit from the rise in gold price, yet not enough premium to sink you. At less than a 2x face value premium to gold I like the leverage that these mid-grade Saints hold. And since I love coins and understand the basic coin market/grading, this covers both bases for me. It may well turnout that just vanilla-flavored gold bullion outperforms all the gold coins. Such would be the case if gold became extremely inflated where all the premiums for Saints/Libs would disappear. Just like they did for BU silver dollars and rolls in 1980.

I too am alarmed at the state of our economic affairs. And while we exercise our power to vote to change things. Another cabinet comes in and continues the same mess. There is little difference betw the 2 parties. And since individually, I'm really powerless to stop this, and you won't find even 5% of the population who agrees that we are in trouble with our fiscal policies, the only solution for the time being is to protect one's family and do the best you can.

roadrunner

CarlWohlforth

I was following Peter Lynch at the end of his career. During that time Magellen was similar to the S&P index in composition. He paid great attention to detail and tried to find companies that actually made a profit, could increase that profit and had stock trading below 5 year averages. However the fund became so big it started looking like the index.

Gold seems to be going up as the dollar falls. Generic gold coins and bullion would be good to own if that trend continues.

Growing wealth does seem like losing weight. You have to spend less than you earn. That is just like you have to eat less calories than you burn to lose weight. Simple huh? It just seems so hard to do for so many...

Will the US spend itself into the poor house? I don't think so. It does look that way now, but I think we will get our spending back under control. With spending in control the slide in the dollar should stop. If interest rates increase the dollar should rise again reversing the movement in gold. Of course I'm always the optimist.

roadrunner

By saving some gold, and other tangible assets like rare coins, I am in effect saving capital. Part of today's economic quandry is that as a whole we have become a "save-less" society. The govt urges us to spend..spend..spend to keep the beast alive and have supplied us with easy credit and plenty of freshly printed cash. The natural correction to overspending is saving. This is what normally helps to right the ship over time. I'm actually doing my part. When attractive alternatives become available, I will invest in them. The excesses of production have to be wiped out first. Still much to do. Savers always have to balance spenders. And right now, our own govt gives us little choice in the saving dept since our REAL interest rates are negative to inflation (even using the quoted CPI number though the actual one is more like 5%). So US capital is going overseas, being parked in foreign currencies, and also other commodites (gold too) until it pays to save again with the US dollar.

roadrunner

dollardude

In answer to the original question, I think all gold coin series will benefit, but probably the lower grade stuff, i.e., MS62 and below, and probably the more recent dates. Higher grade stuff, i.e., "choice BU" or MS63 and above, and older dates, have little to do with the value of gold at the time, and a lot to do with condition and rarity. As the grade and/or rarity increases, the intrinsic value of the gold becomes less relevant.

If someone wants to invest a very small portion of their portfolio in gold, I have no problem with that. I don't recommend anything at all in gold, as you know. However, a very small amount won't hurt you one way or the other IF you have FIRST gotten COMPLETELY out of debt, fully funded your emergency fund, fully funded your retirement plan, fully funded your Roth IRA, AND fully funded your kids' college. IF you have done all of these things FIRST, ONLY THEN should you even think about high risk investments like gold. The problem is, 99% of Americans have not done this basic investing. Yes, I think the U.S.' borrowing problem -- both at the government level and at the individual level, is a huge problem. We need to pay off the government's debt and personal debt. There is no reason that this country -- being one of the richest countries in the world -- should have a debt problem. However, I will stick to my original premise that gold is still a horrible investment even in this scenario. Investing money in gold will not solve the debt problem. Only by investing in companies and people's new businesses will we begin to work ourselves out of debt.

Regarding good growth stock mutual funds, it is VERY HARD to beat the S&P 500 index over an extended period of time, i.e., 10 years or more. Today's hot mutual fund can be tomorrow's loser. Let me give you a couple of examples. First, look at the Janus 20 Fund. A few years ago, this was the hottest thing since sliced bread. It was surpassing the S&P 500 index left and right. Now, it has lost a huge amount of money and is only rated three stars out of five by Morningstar. Also look at the Vanguard U.S. Growth Fund. A few years ago, this was also one of the hottest funds around. Now, it has also lost a huge amount of money and is only rated two stars out of five by Morningstar. The conclusion here is that past good results don't necessarily mean future good results. That is why the Vanguard 500 Index Fund is such a good investment vehicle. On average, an actively-managed fund lags the S&P 500 index by about whatever the expense ratio is, and this difference is compounded every year. Do some research yourself if you don't believe me.

Here is a comparison to ponder concerning the world's two largest stock mutual funds:
1. Vanguard 500 Index (VFINX) (open to new investors): passively-managed, 0% load (no load), 0.18% expense ratio, 1.42% yield, ~125% 10-year return
2. Fidelity Magellan (FMAGX) (closed to new investors): actively-managed, 3.5% load (load), 0.76% expense ratio, 0.75% yield, ~30% 10-year return

MoneyLA

Thank you for the many well thought responses. Here's what Im thinking and a lot of it is based on what happened around 1980 when gold peaked at $875 an ounce:

Silver will soar byh a greater percentage than gold in the coming months as silver fills the gap and meets the traditional ratio of 17 to 1 for gold to silver. At $400 per ounce for gold, silver should trade at $23.50 per ounce.

If I were to make a "numismatic/bullion" play I would stick with Morgans in MS65 condition, and I could see them return to the $200-300 level easily. Should silver go back to fifty dollars an ounce then I could see ms65 morgans back at $500.

My second best play would be ms60-ms63 st gaudens.

Why morgans over $20 gold pieces? becasue the morgans are more affordable and would have a larger audience of potential buyers.

My next play would be mint state FRANKLIN and 1964 KENNEDY HALVES because of their small premium above bullion. Im not talking gem coins, just ms60 to ms63 coins. Next on the list would be low grade ms washingtons.

While the numismatic premiums for rare coins would increase, I beleive that the non gem coins in lower grades would get the biggest percentage boost.

watch copper prices carefully. if copper excedes $1.40 per pound then a copper penny (pre 1982) is worth more than one cent.

cheers, alan

MoneyLA

gold traded above $400 an ounce on wednesday, nov 19th, and wholesale dealers tell me that ms64 and ms65 pcgs and ngc morgans are starting to move -- hard to buy in quantity. one dealer is quoting quantity lots of ms65 morgans at $115 each -- considerably higher than single coin price because getting them in bulk is difficult. individually being priced at $90-95 each. he says ms64 morgans offer the best appreciation, most bang for the buck.

thoughts?

cheers, alan mendelson

dollardude

I own many PCGS MS64 Morgans (see my link below). Although I personally don't like gold as an investment, I do agree that professionally-graded Morgans will continue to increase in price for another year or two because of increasing collector demand and decreasing supply. I believe all of the lower grades (MS65 and below) will benefit. The higher grades are already appreciated, IMO, and their price appreciation will not be as substantial.

I'd like to add that I collect Morgans strictly for enjoyment. The fact that they have appreciated in value is a side effect for me.

fcloud

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